What Would Reagan Do (WWRD)?

Reagan actually raised taxes — but he called them 'revenue gains,' and he did it by closing loopholes and broadening the tax base.

By , Guest blogger

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    This file photo from November, 1981, shows President Ronald Reagan during a press conference in the East Room at The White House. Though he's known for cutting taxes, he actually increased revenues by broadening the tax base and closing loopholes.
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Ironically, not cut taxes as much as President Obama is proposing!

Here’s an awesome story by Jeanne Sahadi on CNN-Money, citing several tax policy experts who explain that quite contrary to Reagan’s reputation, he actually signed into law what amounted to the “largest tax increase in (peacetime) American history”–upon realizing that our country couldn’t really afford the largest tax cuts that had he put in place earlier in his Administration. But the Reagan Administration’s tax increases were large in terms of revenue gains, not in terms of marginal tax rates, because they did it the smart way: by reforming the tax system to make the tax base broader and more efficient. (Pssst: they accomplished this with a good deal of bipartisanship.)

From Jeanne’s story (emphasis added):

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“Reagan was certainly a tax cutter legislatively, emotionally and ideologically. But for a variety of political reasons, it was hard for him to ignore the cost of his tax cuts,” said tax historian Joseph Thorndike.

Two bills passed in 1982 and 1984 together “constituted the biggest tax increase ever enacted during peacetime,” Thorndike said.

The bills didn’t raise more revenue by hiking individual income tax rates though. Instead they did it largely through making it tougher to evade taxes, and through “base broadening” — that is, reducing various federal tax breaks and closing tax loopholes…

“What people forget about Ronald Reagan was that he very much converted to base broadening as a means of reducing deficits and as a means of tax reform,” said Eugene Steuerle, an Institute Fellow at the Urban Institute who had helped lay the groundwork for tax reform in 1986 and served as a deputy assistant Treasury secretary during Reagan’s second term.

There were other notable tax increases under Reagan.

In 1983, for example, he signed off on Social Security reform legislation that, among other things, accelerated an increase in the payroll tax rate, required that higher-income beneficiaries pay income tax on part of their benefits, and required the self-employed to pay the full payroll tax rate, rather than just the portion normally paid by employees.

The tax reform of 1986, meanwhile, wasn’t designed to increase federal tax revenue. But that didn’t mean that no one’s taxes went up. Because the reform bill eliminated or reduced many tax breaks and shelters, high-income tax filers who previously paid little ended up with bigger tax bills…

All told, the tax increases Reagan approved ended up canceling out much of the reduction in tax revenue that resulted from his 1981 legislation.

Was this a politically-easy thing to do? Probably not, but it was at least easier for a strong leader like Reagan back then, than it would be for an equally strong leader today. Jeanne quotes Marty Sullivan:

“By today’s standards, the Gipper would easily qualify for status as a back-stabbing, treacherous RINO [Republican in Name Only],” wrote Tax Analysts contributing editor Martin Sullivan, in an article for Tax Notes in May.

Kind of ironic how President Obama’s current position on tax policy seems more in keeping with the ideals of at least today’s Republican party than would Reagan tax policies brought forward to today.

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